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Personal automobile insurance industry continues to show signs of weakening underwriting and operating results. According to Best’s Special Report, historically, personal automobile underwriting results have been generally stable, with near breakeven underwriting performance. However, from the middle of 2012 through the middle of 2015, personal automobile rates increased in the range of 2-4%, based on pricing trends reported by MarketScout. The automobile insurance industry is in the process of adjusting to continued technological innovation, the evolution of autonomous vehicles, the rise of Uber and Lyft, and the potential growth of non-traditional competitors.

Although there are hundreds of carriers to choose from, the top 25 carriers continue to dominate the total personal automobile market, accounting for 84.2% of the entire market in 2015, and 23 of the top 25 companies experienced year-over-year premium growth in 2015. The top five automobile insurance carriers – State Farm, Berkshire Hathaway, Allstate, Progressive, and USAA – all generated more than $10.0 billion in personal automobile net premiums written. Many of the top 25 writers experienced modest improvement in their accident year loss ratios between 2011 and 2014, however, this trend reversed in 2015 due to trends indicating serious headwinds concerning the near-term prospects for profitability.

Rates increased 5.1% from 2014 to 2015. Rate activity along with the growth in new car sales meant higher insured values and more vehicles per household. Both of these factors contributed to the economically driven increase in premium volume insurers have enjoyed in recent years. Also, rising medical cost inflation on bodily injury claims is largely responsible for the rise in average cost per automobile claim. Economic growth, more miles driven, low gas prices, and higher speed limits have contributed to the increase in frequency and severity as well.

While determining specific causes behind changes in claim count trends is not an exact science, an increase in miles driven resulting from lower gasoline prices, reduced unemployment rates, and an increase in vehicles overall were definitely contributing factors. Furthermore, the rise in accident frequency has also been associated with growing levels of distracted drivers and higher average speeds on many of the roads and highways throughout the country.

According to a recent study released by the National Highway Traffic Safety Administration and the Virginia Tech Transportation Institute, 80% of automobile accidents and 65% of near-accidents involve at least some form of driver distraction within three seconds of the crash or near miss. Distracted driving is the number one cause of automobile accidents, ahead of speeding, drunk driving, reckless driving, and rain. The combination of increased frequency and the fact that claim costs are also rising, means insurers will likely continue to confront similar challenges until the technology designed to reduce accident frequency experiences greater market penetration.

In recent years, car technology has improved dramatically as evidenced by the increasing prevalence of features such as cruise control, emergency braking, and lane control in newer vehicles. As technology continues to advance and an increasing number of vehicles on the road fall into the higher levels, it is expected that the number of accidents will be reduced due to safety advancements. This, in turn, could lead to a contraction in automobile premiums.

The ultimate impacts of these developments are understandably hard to predict, but recognizing that these developments could eventually have an adverse impact on financial results, an increasing number of companies are devoting time and resources in an attempt to better understand and predict the potential implications on their operations. The companies that can execute on the blocking and tackling aspects of underwriting and claims over the near-term, while incorporating the meaningful evaluation of emerging threats into their enterprise risk management framework, will be the most well-prepared for the automobile market of today and tomorrow.